Professional Documents
Culture Documents
E Banking
E Banking
Chapter II
2.1. INTRODUCTION
Oxford Dictionary and Thesaurus defines “credit card authorizing purchase
of goods on credit”. Credit cards are innovative instruments in the area of financial
services offered by commercial banks. The concept of credit cards was first
developed by Diners’ club founder Frank McNamara, an American businessman
who found himself without cash at a weekend resort founded Diner’s card in 1950.
American Express issued their first credit card in 1958. Bank of America issued the
Bank Americard (now Visa) bank credit card later in 1958. Right from that time, the
commercial banks and non-banking companies in the USA adopted the concept of
credit cards to develop their business. Barclays Bank was the first bank to introduce
credit card in 1966 in Britain.102
The credit card business got momentum in the sixties and a number of banks
entered the field in a big way. Credit card culture is an old hat in western countries.
In India, it is relatively a new concept that is fast catching on. The present trend
indicates that the coming years will witness a burgeoning growth of credit cards
which will lead to a cashless society. Credit has become an important vehicle of
trade promotion. Credit cards provide convenience and safety to the buying process.
One of the important reasons for the popularity of credit cards is the sea change
witnessed in consumer behaviour. Credit cards enable an individual to purchase
products or services without paying immediately. The buyer only needs to present
the credit cards at the cash counter and sign the bill. Credit card can, therefore, be
considered as a good substitute for cash or cheques.103
102
http://inventors.about.com/od/cstartinventions/a/credit_cards.htm.
103
S. Gurusamy (2007). Merchant Banking and Financial Services. Chennai: Vijay Nicole
Imprints Private Limited, p.344.
lxxxvi
A credit card is a device which enables the holder to obtain goods on credit
from specified supplies. The holder of the card, in some cases, has to pay the yearly
subscription and the suppliers also have to pay commission on sales to the bank or
the body issuing the card. The suppliers are paid promptly and so are protected
against bad debts, while the holder makes a single monthly payment to cover all his
purchases for that period. Credit cards are issued only after the applicant’s credit
worthiness has been accepted as satisfactory. According to credit rating, holder of
104
E. Gordon and K. Natarajan (2006). Financial Markets and Services. New Delhi: Himalaya
Publishing House, pp.414.
105
http://www.advfn.com/money-words_term_1199_credit_card.html.
106
C.J. Woelfel (1994). Encyclopedia of Banking and Finance. New Delhi: S. Chand and
Company Limited, pp.267.
lxxxvii
the credit card may be allowed a specified amount of credit from one month to
another.107
A credit card, as the name indicates, enables the cardholder to enjoy credit
from the issuing bank for a specific period after the purchases. During this
intervening period, the cardholder is allowed to use the card for incurring further
expenses.108 A bankcard is used to make an electronic withdrawal from funds on
deposit in a bank, as in purchasing goods or obtaining cash advances. Credit cards
are one of the most popular forms of payment for consumer goods and services in the
United States.
The concept of using a card for purchases was described in 1887 by Edward
Bellamy in his Utopian novel Looking Backward. Bellamy used the term credit card
eleven times in his novel.110 In the early 1900s, oil companies and department stores
issued their own proprietary cards. Such cards were accepted only at the business
that issued the card and in limited locations. While modern credit cards are mainly
used for convenience, these predecessor cards were developed as a means of creating
customer loyalty and improving customer service.111 The modern credit card was
107
J.L. Hamson (1970). The Structure of Modern Commerce. London: The English Language
Boom Society and Maclonaled and Evans Ltd., p.170.
108
RBI (1994). Report of the Committee on Technology Issues Relating to Payment System,
Cheque Clearing and Security Settlement in the Banking Industry, Mumbai: RBI, pp.75.
109
http://www.creditcards.com/credit-card-news/credit-cards-history-1264.accessed on
December 18, 2007.
110 E. Bellamy (1888). Looking Backward 2000-1887 Utopion novel . United States: William Ticknor Publisher, pp.470.
( )
111
S. Sienkiewicz (2007). in a paper for the Philadelphia Federal Reserve Bank entitled “Credit
cards and payment efficiency.” Published December 18. papers.ssrn.com/sub/papers cfm?abstract
Id=927493.
lxxxviii
the successor of a variety of merchant credit schemes. It was first used in the 1920s
in the United States, specifically to sell fuel to accepting each other's cards. Western
Union had begun issuing charge cards to its frequent customers in 1914. Some
charge cards were printed on paper card stock, but were easily counterfeited.
The Charga-Plate was an early predecessor to the credit card and used during
the 1930s and late 1940s. Charga-Plate was a trademark of Farrington Manufacturing
Co. Charga-Plates was issued by large-scale merchants to their regular customers,
much like department store credit cards of to-day. The first bank card, named
"Charg-It," was introduced in 1946 by John Biggins, a banker in Brooklyn. When a
customer used it for a purchase, the bill was forwarded to Biggins' bank. The bank
reimbursed the merchant and obtained payment from the customer. Purchases could
only be made locally, and “Charg-It” cardholders had to have an account at Biggins'
bank. In 1951, the first bank credit card appeared in New York's Franklin National
Bank for loan customers. It also could be used only by the bank account holders. 112
The concept of paying different merchants using the same card was invented
in 1950 by Ralph Schneider and Frank X. McNamara, founders of Diners Club, to
consolidate multiple cards. The Diners Club, which was created partially through a
merger with Dine and Sign, produced the first "general purpose" charge card, and
required the entire bill to be paid with each statement. That was followed by Carte
Blanche and in 1958 by American Express which created a worldwide credit card
network.113 The Bank of America created the Bank Americard in 1958, a product
which, with its overseas affiliates, eventually evolved into the Visa system.
MasterCard came to being in 1966 when a group of credit-issuing banks established
Master Charge. It received a significant boost when Citibank merged its proprietary
‘Everything Card’, launched in 1967, into Master Charge in 1969. The fractured
nature of the U.S. banking system meant that credit cards became an effective way
for those who were traveling around the country to move their credit to places where
112
http://www.creditcards.com/credit-card-news/credit-cards-history, accessed on December 18,
2007, IST 18.00 hrs.
113
http://en.wikipedia.org/wiki/Diners_Club_IST16.00hrs_20th _October_2008 (accessed).
lxxxix
they could not directly use their banking facilities. In 1966, Barclaycard in the UK
launched the first credit card outside the U.S.114
There are now countless variations on the basic concept of revolving credit
for individuals (as issued by banks and honoured by a network of financial
institutions), including organization-branded credit cards, corporate-user credit cards,
store cards and so on.115
114
www.mastercards.com
115
http://en.wikipedia.org/wiki/creditcard.
116
S. Gurusamy (2007). op. cit., p.343.
xc
contrast, credit cards allow the consumers to 'revolve' their balance, at the cost of
having interest charged. Most credit cards are issued by local banks or credit unions,
and have the same shape and size, as specified by the ISO 7810 standard.117
Credits cards are a relatively recent development. The VISA Company, for
example, traces its history back to 1958 when the Bank of America began its Bank
Americard program. In the mid-1960s, the Bank of America began to license banks
in the United States the rights to issue its special Bank Americards. In 1977 the name
Visa was adopted internationally to cover all these cards. VISA became the first
credit card to be recognized worldwide. 118
Credit cards are relatively new to India. Andhra Bank and Central Bank of
India introduced credit cards in 1981. As of now there are about more than dozen
major banks in Indian and foreign which have entered this line of business, besides
some non-banking institutions. Since the plastic money has become as good as legal
tender more people are using them in their day-to-day activities. The attitude of
people towards credit cards has changed.
117
http://en.wikipedia.org/wiki/credicard.
118
http://www.corporate.visa.com
xci
growing at 40 per cent. The RBI data put total electronic transaction in the country at
over Rs.2,35,000 crores in 2006-07. This increased to Rs.3,60,000 crores in the first
10 months (April-January) of 2007-08. At the end of April-January 2007-08, all of us
together held about 27.5 million credit cards transacted Rs.47,476 crores through
these cards in 10 months of the year.119
The Indian credit cards industry is still in a relatively nascent stage when
compared to economies in West Asia, a survey by Master Card International.
According to the survey results, only 14 per cent of Indians currently own a credit
card. This is in sharp contrast to countries such as the United Arab Emirates and
Kuwait where 63 per cent and 50 per cent of respondents, respectively, own a credit
card. The results indicate that the high growth potential for the payment card
industry in India,
In terms of the single most important factor influencing choice of credit card,
30 per cent of Indians say they are influenced by the credit card brand, closely
followed by 23 per cent who choose a credit card depending on the credit limit.
Interestingly, 8 per cent of cardholders say they are influenced by the card design,
while only 5 per cent and 2 per cent cardholders say they are influenced by the
interest rate and the bank staff recommendations respectively.120
119
Priya Ranjan Dash. “Your credit card under watch.” Financial Chronicle. Chennai, (April
17, 2008), p.16.
120
Business Line. New Delhi (December 27, 2007). Survey accessed online on 17th Dec., 2007.
xcii
xciii
121
www.cardbhai_com/reliance_creditcard_launched_creditcard_in.html (Accessed on May
05, 2008) at 10.58 p.m.
122
Ibid.
123
Ibid.
xciv
TABLE 2.1 Volume and value of credit and debit card transaction in Indian banking
(Volume in Lakh and Value (Rs.) in crore)
Source: Reserve Bank of India, Money and Banking - Monthly Bulletin (May 2009).
The above table shows that the value and volume of credit and debit card
during the financial year between 2003-04 and 2008-09. It reveals that the number of
credit and debit card transaction grew by 159 per cent and 238 per cent respectively
in six financial year ending on March 2009. The value of credit and debit card
transactions were also increased to 270 per cent and 281 per cent respectively in the
same period.
In the previous year ending 2008-09 over 2007-08, credit and debit card
transaction growing up in 13.76 per cent by volume and 44.56 per cent by value and
xcv
12.71 per cent and 48.13 per cent in value respectively in the same period. It is
concluded that there was a growth of credit and debit cards by volume and value in
India.
Source: Reserve Bank of India, Money and Banking - Monthly Bulletin (May 2009).
* Number of outstanding cards at the end of March 2009 (excluding those withdrawn/blocked)
From the above table one can observe that the credit card is a upward growth
of 25 per cent to 34 per cent during 2001-02 to 2006-07. The highest growth rate
reported on 2005-07 but in FY2007-08, the rate of growth came down to 19.13 per
cent which was below the average growth scores of 23.20 per cent. Further,
FY 2008-09, there was an unexpected sudden decline of 10.34 per cent and with
many banks closing inactive and unproductive accounts in their credit card portfolio.
But during eight years commencing from 2001-2009 there was a growth of around
three time (307%). Further, the study indicates that the growth to some extent will be
xcvi
impacted by the current financial turmoil and credit squeeze. Bankers will also
become a little more conscious while doing risk evaluation of card applicants upon
expiration of the card, banks did not renew for some customers and some canceled
the cards voluntarily or by force due to more default rate and credit losses of the
banks. It could also be customer consolidation because multiple cards becoming
unmanageable by the users. The overall trend will remain positive over the past
periods. It is concluded that there was a growth of credit card business in India and
the need for credit does not diminish.
70
60
50
40
Number in lakh
30
In percentage
20
10
0
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
-10
-20
-30
-40
Year
The above table reveals that the growth of outstanding debit card in India
for the past five years around three times and the average score at the rate of
50.78 per cent. At present from 1st April 2009, the decision taken by the RBI to
encourage paperless e-banking transaction, the customers were allowed for free use
of ATM-debit card without charge in any banks ATMs across the country will
increase further growth in future.
of -10.34 per cent. ICICI Bank is now the largest credit card issuing bank in India
with 9 million cards on March end 2008. Defaulters on credit card are up by 12 per
cent when compared to 10 per cent in FY 06-07. One of the reasons attributed to
higher default rate in other retail debt is demanding higher EMIs which have put
pressure on individuals. Also over leveraging up to 20 times their annual income on
loans has led to the rise of defaulters. International financial crisis is also another
reason to reduce the borrowing power and increase the default rates of customers.124
124
www.cardbhai_com. March 05, 2008 at 11.05 p.m.
125
Ibid.
126
www.creditcard.india.com
xcix
withdrawn of inactive cards. This may reduce more default rate and credit losses of
banks in India.
127
www.businessline.in/webextras.
c
needs, credit card companies issue several types of credit cards. Each type has its
own benefits. They can be classified as follows:
ci
128
N. Premavathy (2007). Financial Services and Stock Exchanges. Chennai: Sri Vishnu
Publications, pp.5.10-5.14.
ciii
i. ATM Card: ATM cards allow customers to access their accounts at any
time-24 hours a day, every day of the year, through Automated Teller
Machines. Customers can withdraw cash, transfer funds, find out their
account balance and perform other banking and financial transactions with
the help of ATMs.
ii. Debit Card: A debit card, like an ATM card, directly accesses a customer’s
account. It is a hybrid of ATM and credit card. The card directly debits a
designated savings bank account. Whereas in the case of credit cards, a grace
credit period of 20 to 50 days for making the payment is available, no such
credit period is allowed under debit cards. These cards can be used either at
merchant locations who have this facility to buy goods and services or at
ATMs. Presently, ATM-Cum Debit cards issued by Indian banks are in use.
iii. Prepaid Card: Prepaid cards are also known as ‘Stored Value Cards’. These
cards are with stored value paid in advance by the holder. The card issuer and
the service provider are identical. They are also called Limited Purpose
Prepaid Cards which can be used for a limited number of well -defined
purposes. Its use is often restricted to a number of identified points of sales
within a specified location
iv. Private Label Card: These cards are uniquely tied to the retailer issuing the
card and can be used only in that retailer’s stores. A bank, on the basis of a
contractual agreement with the retailer extends credit under this type of card.
v. Affinity Group Card: These are credit cards designed for a collection of
individuals with some form of common interest or relationship, such as
professional, alumni, retired persons’ organizations, sports teams, schools, or
service organizations. This credit card carries the logo of the affiliated
organization on the card design and brings special benefits and discounts on
products from that company. In case the affiliated company is a charity or
non-profit organization, a part of the credit card expenses go into the affiliate
organization's account. For example: The Help Age India Credit Card issued
by ICICI bank.129
129
www.icicicard.com
civ
vi. Smart Card: A smart card is a credit card sized plastic card with an
embedded computer chip. The chip allows the card to carry a much greater
amount of information than a magnetic strip card. The telecom industry,
was perhaps the pioneer in smart cards, the most prominent being Subscriber
Identity Module (SIM) cards in the GMS digital cellular network. Using
special terminals designated to interact with the embedded chip, the card can
perform special functions. This is essentially a prepaid card.
vii. Chip Card: A chip card is a plastic card with an embedded integrated circuit
or as microchip as opposed to magnetic strips on a conventional card. The
chip can be used on existing debit and credit cards as well as on emerging
products like stored value cards. Inserting the card in a pin-pad effects the
transaction, and the value on it reduces accordingly. It is re-loadable and
disposable. The idea is to do away with the trouble of carrying cash. The
chip card also scores over the magnetic card, in that it can retain 50 to 60 of
the latest transactions, which can be produced on demand. It is also
considered more durable and secure since the cardholder alone can access it
through a Personal Identification Number (PIN).
viii. Co-branded card: The Times Card, a co-branded credit card, is the first of
its kind, from a publishing house in the Asian subcontinent. This is a co-
branded credit card of Times of India Group and Citibank MasterCard. The
co-branding concept caught the credit card industry the world over during the
last five years.130
i. Special purpose Card: The eighties saw the development of special purpose
cards. A host of special purpose cards were issued by departmental stores,
airlines, oil companies. For instance, the International Bank of Asia in Hong
Kong launched the first ‘women only’ card, ‘My card’ in the year 1988.
A highly encouraging membership and increasing potential of such special
purpose cards are called “Lady’s card” in Malaysia. In 1990, the Green card
130
N. Premavathy (2007). op.cit., pp.5.10-5.14.
cv
was launched in the U.K and Europe to promote contributions towards the
protection of the environment. HDFC issued ‘My City’ credit cards used in
particular city with special discount offer for oil and petrol and also an offer
for cash back. AXIS Bank also offers special purpose credit cards like Gift
card, Travel currency card and Remittance card.131
ii. Add-on card: An add-on card is more of an additional Credit card that the
customer can apply in the name of their family members (father, mother,
sister, brother, spouse, children), within the overall credit limit. Family
members applying for Add-on cards have to be 18 years and above. All the
payments for the services made from Add-on card(s) is done by the original
cardholders. Most banks allow for at least two Add-on cards.
iii. Photo card: If a card comes with the imprinted photo, then it is a Photo
card. This type of card is considered safer as it is easier to identify the credit
card user. It also serves as more identity card.
iv. Power card: It is a comprehensive credit card product that enables banks and
financial industry to enter into issuing and acquiring business of Credit
Cards. The basic advantage of this efficient tool is to improve productivity
and control the risks involved in day-to-day activities of any financial
institutions in credit cards. The product is 24 × 7, multi language, multi
currency, multi-bank and multi country.
v. Regular credit card: This is the most basic type of credit card. It has a low
credit limit and the most basic status among various credit cards. Credit card
companies can club various other reward programs like travel rewards, cash
back offers to enhance its value and appeal to customers.
vi. Silver credit card: Silver credit cards have higher eligibility criteria than
regular credit cards. They bring more benefits to the customers, and have
higher credit limits than regular credit cards.
vii. Gold credit card: Gold credit cards have a higher status and credit limits
than silver credit cards. Needless to say these types of credit cards have
higher income requirements as their eligibility criteria. In addition to the
131
http://www.apnaloan.com/credit-card-india/axis-bank-(uti)/index.html
cvi
regular benefits, banks extend special privileges to their gold credit card
holders.
viii. Platinum or Titanium credit card: These types of credit cards bring more
benefits to credit card holders than regular, silver or gold card. These credit
cards generally have platinum or titanium hue and are issued to a select class
of clients who have excellent financial background and good income levels.
Platinum credit cards have personal concierge services, in addition to
exclusive platinum benefits.
ix. Signature credit card: A league of its own, the Signature Credit Cards
usually have no pre-set spending limits, personal concierge service, signature
travel, and lounge and membership benefits. Offered to a very elite group
these credit cards, requires an excellent financial status. On June 9, 2007
ICICI bank introduced the Visa Signature Card and became the first credit
card issuer in India to launch a premium credit card. This has a joining fee of
Rs.25,000/- and an annual fee of Rs.2,500/-. The exclusivity of this signature
card is exemplified by the statement.
x. Credit cards by invitation only: The earliest of the elite, no one can apply
for these card. For example, the American Express Black Credit Card,
popularly called the Centurion Card, is issued by invitation to the most
exclusive and elite, to those who spend a certain minimum amount (which
can run into crores of rupees). These cards have huge annual fees and
minimum spending levels. In fact, these credit cards are so exclusive, that
they have an aura of mystery surrounding them and are considered status
symbols.
xi. Reward card: There are cards which offer rewards for specific kinds of
purchases. For example, the Airline Reward Card offer rewards on air travel,
Cash back card offer cash rewards on every card purchases, Fuel Reward
Card offer rebates on petroleum and other fuel purchases from specified
outlets and preferred partners. Similarly, Hotel Reward Card give rebates on
hotel stay and related expenses and Health Rewards Card give benefits on
medical expenses, health treatments and related activities. The rewards
cvii
offered by credit card companies in alliance with various brands and stores,
make them more attractive for the credit card holders.
xii. Student credit card: As the name implies, these credit cards are especially
designed for students and help them start their credit card journey. These
bring lots of rewards especially suited for students, which help them save
time, money and enjoy their student life. They are a first step towards
building credit history. A good credit history goes a long way in creating a
relationship with banks helping to secure much needed loans and credit in the
future.
xiii. Special feature credit card: Credit cards can also be grouped on the basis of
their features. For example, based on their introductory interest rates, credit
cards can be low introductory interest credit cards, or 0 (zero) Interest credit
cards. The Zero introductory interest credit cards provide interest free credit
(0%) for a specified time period, which is called the introductory period.
Similar is the case with credit cards that come without any annual fee what so
ever and are called ‘no annual fee’ credit cards.
xiv. Balance transfer credit card: Credit card companies provide lucrative
offers with 0 per cent introductory interest or low introductory interest
charges on balance transfers. This allows credit card holders to transfer the
outstanding balances on their existing credit cards to a credit card with low or
zero interest on balance transfers. This brings them a lot of savings in the
interest rates. The balance transfer credit cards may charge a balance transfer
fees for every such operation.132
xv. Kisan Credit Card (KCC): The Kisan Credit Card Scheme aims at
providing need based and timely credit support to the farmers for their
cultivation needs as well as non-farm activities and cost effective manner to
bring about flexibility and operational freedom in credit utilization. The
Kisan Card is for a period of 3 years subject to an annual review. It was
launched in 1998-99 by the Government of India in consultation with the
Reserve Bank of India and National Bank for Agricultural and Rural
132
www.creditcards.com
cviii
Development is a huge hit with the farmers in India. According to the RBI,
presently there are about 66.56 million Kisan Credit Cards in use across
India, which have been issued by various banks. 133
xvi. Secured credit card: Secured credit card is a type of credit card secured by a
deposit account owned by the cardholder. This deposit is held in a special
savings account. The cardholder of a secured credit card is still expected to
make regular payments, as with a regular card, but should they default on a
payment, the card issuer has the option of recovering the cost of the
purchases paid to the merchants out of the deposit. The advantage of the
secured card for an individual with negative or no credit history is that most
companies report regularly to the major credit bureaus. This allows for
building of positive credit history.134
vi. Card Payment: The credit cardholder makes the payment to the issuing bank.
133
http://www.rupeetimes.com/news/credit_cards/kisan_credit_cards_becoming_increasingly_
popular_with_farmers_1235.html.
134
http://en.wikipedia.org/wiki/credit_card#parties_involved.
135
S.Gurusamy (2007), op.cit., p.340.
cix
Purchase of Goods
and raising bill (4)
136
www.reuters.com
cx
137
http://en.wikipedia.org/wiki/credit_card
cxi
authorization will generate an approval code, which the merchant stores with the
transaction.
Batching: Authorized transactions are stored in "batches", which are sent to the
acquirer. Batches are typically submitted once per day at the end of the business day.
If a transaction is not submitted in the batch, the authorization will stay valid for a
period determined by the issuer, after which the held amount will be returned to the
cardholder's available credit ( authorization hold).
Clearing and settlement: The acquirer sends the batch transactions through the
credit card association, which debits the issuers for payment and credits the acquirer.
Essentially, the issuer pays the acquirer for the transaction.
Funding: Once the acquirer has been paid, the acquirer pays the merchant, the
merchants receives the amount totaling the funds in the batch minus the “discount
rate,” which is the fee the merchant pays the acquirer for processing the transactions.
Charge backs: A chargeback is an event in which money in a merchant account is
held due to a dispute relating to the transaction. Charge backs are typically initiated
by cardholders. In the event of a chargeback, the issuer returns the transaction to the
acquirer for resolution. The acquirer then forwards the chargeback to the merchant,
who must either accept the chargeback or contest it.
2.11. REWARDS
Many credit card customers receive rewards, such as frequent flier points, gift
certificates, or cash back as an incentive to use the card. Rewards are generally tied
to purchasing an item or service on the card, which may or may not include balance
transfers, cash advances, or other special uses. Depending on the type of card,
rewards will generally cost the issuer between 0.25 and 2.0 per cent of the spread.
Networks such as Visa or MasterCard have increased their fees to allow issuers to
fund their rewards system.
sale, but will vary not only from merchant to merchant (large merchants can
negotiate lower rates )but also from card to card, with business cards and rewards
cards generally costing the merchants more to process. The interchange fee that
applies to a particular transaction is also affected by many other variables including
the type of merchants. Interchange fees may consume over 50 per cent of profits
from card sales for some merchants (such as supermarkets) that operate on slim
margins. In some cases, merchants add a surcharge to the credit cards to cover the
interchange fee.
138
http://mastercard.com
cxiii
In 2006, according to The Nilson Report, Visa held 44 per cent of the credit card
market share and 48
per cent of the debit card market share in the United States. Visa Inc. is the world’s
largest payments company, with more than US$ 4.0 trillion of total volume as of
March 31, 2008.139
2.13.3. American Express: The world’s favourite card is American Express Credit
Card. More than 57 million cards are in circulation and growing and it is still
growing further. Around US $ 123 billion was spent last year through American
Express Cards and it is poised to be the world’s no.1 card in the near future. In a
regressive US economy last year, the total amount spent on American Express cards
rose by 4 percent. They are very popular in the U.S., Canada, Europe and Asia and
are used widely in the retail and everyday expenses segment.140
2.13.4. Diners Club International: Diners Club International, originally founded as
Diners Club, is a charge card company formed in 1950 by Frank X. McNamara,
Ralph Schneider and Casey R. Taylor. When it first emerged, it became the first
independent credit card company in the world. Diners Club is the world's no.1
Charge Card. Diners Club cardholders reside all over the world and the Diners Card
is a all time favourite for corporate. There are more than 8 million Diners Club
cardholders around the world. They are affluent and are frequent travelers in premier
businesses and institutions, including Fortune 500 companies and leading global
corporations. In April 2008, Discover Card and Citibank announced that Discover
would purchase the Diners Club Network from Citi for $165 million. Discover Bank
has no plans on issuing Diners Club branded cards. Discover purchased the network,
but not the licensees issuing the cards. The deal was completed on July 1, 2008.141
2.13.5. Discover Card: The Discover Card was originally introduced by Sears in
1985, and was a unit of Dean Witter, which merged with Morgan Stanley in 1997. In
2007, the unit was spunoff as an independent, publicly traded company. To-day,
Discover is headquartered in the Chicago suburb of Riverwoods, IIinois. Discover
Financial Services is an American financial services company, which issues the
139
www.corporate.visa.com
140
www.americanexpress.com
141
www.dinersclub.com
cxiv
Discover Card and operates the Discover and Pulse networks. Discover Card is the
third largest credit card brand in the United States, when measured by cards in force,
with nearly 50 million cardholder.142
2.13.6. JCB Card (Japan Credit Bureau): Japan Credit Bureau, usually
abbreviated as JCB, is a credit card company based in Tokyo, Japan. Founded in
1961, it established dominance over the Japanese credit card market when it
purchased Osaka Credit Bureau in 1968 and its cards are now issued in 20 different
countries. Fifty-nine million JCB card members worldwide use their cards to
purchase over US$62.7 billion of goods and services annually in 190 countries
worldwide. JCB also operates a network of membership lounges targeting Japanese,
Chinese, and Korean travelers in Europe, Asia, and North America. The JCB
philosophy of “identify the customer’s needs and please the customer with service
from the Heart” is paying rich dividends as their customers spend US$ 43 billion
annually on their JCB cards.143
142
www.discover.com
143
www.jcbinternational.com
cxv
144
www.icicibank.com
cxvii
For merchants, a credit card transaction is often more secure than other forms
of payment, such as cheques because the issuing bank commits to pay the merchant
the moment the transaction is authorized, regardless of whether the consumer
defaults on the credit card payment . In most cases, cards are even more secure than
cash, because they discourage theft by the merchant's employees and reduce the
amount of cash on the premises. Prior to credit cards, each merchant had to evaluate
each customer's credit history before extending credit. That task is now performed by
the banks which assume the credit risk.145
145
http://en.wikipedia.org/wiki/credit_card
146
B. Chand (1994). Marketing of Services. Jaipur and New Delhi: Rawat Publication, p.88.
cxix
147
http://en.wikipedia.org/wiki/direct_marketing
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2.17.1.3. Telemarketing
The second most common form of direct marketing is telemarketing, in
which marketers contact consumers by phone. The unpopularity of cold call
telemarketing (in which the consumer does not expect or invite the sales call) has led
some US states and the US federal government to create "no-call lists" and
legislation including heavy fines. This process may be outsourced to specialist call
centres. In the US, a national do-not-call list went into effect on October 1, 2003.
Under the law, it is illegal for telemarketers to call anyone who has registered
themselves on the list. After the list had operated for one year, over 62 million
people had signed up. The telemarketing industry opposed the creation of the list, but
most telemarketers have complied with the law and refrained from calling people
who are on the list. India has passed legislation to create a similar National ‘Do Not
Call’ List with effect from 5th June, 2007 by TRAI notification act.148 In other
countries, it is voluntary, such as the New Zealand Name Removal Service.
148
www.ndceregistry.gov.in
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Researchers estimate that United States firms alone spent US$400 million on e-mail
marketing in 2006.149
149
The Power of Direct Marketing. ROI, Sales, Expenditure and Employment in the U.S. –
2006-2007 edition.” Direct Marketing Association, (October 2006).
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2.17.2. Couponing
Couponing is used in print media to elicit a response from the reader. An
example is a coupon which the reader cuts out and presents to a super-store check-
out counter to avail of a discount. Coupons in newspapers and magazines cannot be
considered direct marketing, since the marketer incurs the cost of supporting a third-
party medium (the newspaper or magazine).
0:60 second commercials that ask viewers for an immediate response. A related form
of marketing is infomercials. They are typically called direct response marketing
rather than direct marketing because they try to achieve a direct response via
broadcast on a third party's medium, but viewers respond directly via telephone,
SMS or internet.
150
http://en.wikipedia.org/wiki/direct_selling.
151
“The Integrated Marketing Mix.” BtoB Magazine (July 14, 2008) Available online at
www.scribd.com/19408443/marketing.>
cxxiv
152
www.google.com.
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and a lot more. Bank Credit Cards Special Offers include payment in monthly EMIs
on their Credit Card, Family Plus - a complete insurance plan that is flexible enough
to cover every member of the family. Heavy Discounts, Best Shopping Deals Ever,
Exclusively for Bank Credit Card Holders.
Banks Gold Cards are welcomed at all Merchant Establishments displaying
the VISA logo - over 1,10,000 and MasterCard logo - over 77,000 establishments
across India and Nepal and the Silver and Gold Cards are accepted globally by over
22 million VISA Card and 22 million MasterCard accepting establishments.
153
www.sbicard.com.
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with information about Bank Credit Card account. Customers would now no longer
miss a payment or exhaust Credit limit without a warning. Currently, customers
having credit card account can subscribe to the following alerts. (i) Due date
remainder and (ii) Approaching credit limit and payment received alert reminder.
154
www.icicibank.com
155
Ibid.
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bills. Simply enroll for Bill Pay service and leave where worries over bill payments
to bankers. This offers only to Visa- and MasterCard-holders.
156
www.icicibank.com
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to the available cash limit on the cardholders account. The draft will be delivered to
the credit cardholders mailing address. For each draft request, a transaction fee of 2.5
percent of the amount withdrawn, subject to a minimum of Rs. 300, will be levied. In
addition to the transaction fee, an interest charge will also be levied from the date of
Transaction to the date of repayment. The amount of the draft will be billed in banks
monthly Credit Card statement.
repayment and pay back in 6, 12, 18 or 24 months easy instalements, flat interest rate of
10 per cent per annum. It may be subject to change and for selected customers.
points against exciting options. All we need to do is collect a minimum of 500 points
and start redeeming them for gifts, great benefits and services.157
157
Ibid., www.ICICI.com
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However for cash advances and revolving balances, interest is charged from the date
of transaction. The internet free credit-periods varies from one bank card to another
bank card.
158
www.icicibank.com
cxxxvii
159
http://www.apacs.org.uk
cxxxviii
house that the criminal has access to is given, making it difficult to track the
criminal's real identity.
This would be very hard to track down, and could compromise a large part of the
card base.
There are two types of fraud within the identity theft category - application
fraud and account takeover. Application fraud occurs when criminals use stolen or
fake documents to open an account in someone elses name. Criminals may try to
steal documents such as utility bills and bank statements to build up useful personal
information. Alternatively, they may create counterfeit documents.
Account takeover involves a criminal trying to take over another person's
account, first by gathering information about the intended victim, then contacting
their bank or credit issuer — masquerading as the genuine cardholder — asking for
mail to be redirected to a new address. The criminal then reports the card lost and
asks for a replacement to be sent. The replacement card is then used fraudulently.
2.19.1.9. Skimming
Skimming is the theft of credit card information used in an otherwise
legitimate transaction. It is typically an "inside job" by a dishonest employee of a
legitimate merchant, and can be as simple as photo copying of receipts. Common
scenarios for skimming are restaurants or bars where the skimmer has possession of
the victim's credit card out of their immediate view. The skimmer will typically use a
small keypad to unobtrusively transcribe the 3 or 4 digits Card Security Code which
is not present on the magnetic strip.
2.19.1.10. Carding
Carding is a term used for a process to verify the validity of stolen card data.
The thief presents the card information on a website that has real-time transaction
processing. If the card is processed successfully, the thief knows that the card is still
good. The specific item purchased is immaterial, and the thief does not need to
purchase an actual product; a Website subscription or charitable donation would be
sufficient. The purchase is usually for a small monetary amount, both to avoid using
the card's credit limit, and also to avoid attracting the bank's attention. A website
known to be susceptible to carding is known as a cardable website.
Credit Card Hijacking is the term used when a person’s credit card
information is used for undesired charges for goods or services where the credit card
owner has trouble reasserting control. This can be occur in the following are the
three major forms.
(i) The first form of credit card hijacking is basically identity theft, which is
the deliberate assumption of another person's identity. (ii) The second form of credit
card hijacking, which most people have fallen victim to, is the continued charging of
a person’s credit card for a subscription to goods or services no longer desired by the
credit card owner. (iii) Third form of hijacking is negative option billing is a business
practice of sending goods automatically and billing the recipient unless the recipient
is proactive in declining the goods before they are sent.
2.19.1.14. Phishing
Phishing is the criminally fraudulent process of attempting to acquire
sensitive information such as usernames, passwords and credit card details by
masquerading as a trustworthy entity in an electronic communication.
Communications purporting to be from popular social web sites. Phishing is
cxlii
typically carried out by e-mail or instant messaging, and it often directs users to enter
details at a fake website whose URL and look and feel are almost identical to the
legitimate one. Phishing is an example of social engineering techniques used to fool
users, and exploits the poor usability of current web security technologies.
TABLE 2.4 Credit and debit card fraud losses on the UK-issued cards
(In million)
2006 2007
Fraud Type +/ (06/07) (%)
(£) (£)
Phone, internet and mail order fraud (Card-not-
212.7 290.5 37.0
present fraud)
Counterfeit (skimmed/cloned) card fraud 98.6 144.3 46.0
Fraud on lost or stolen cards 68.5 56.2 -18.0
Card ID theft 31.9 34.1 07.0
Mail non-receipt 15.4 10.2 -34.0
Total 427.0 535.2 25.0
Source: http://www.cardwatch.org.uk
160
http://www.cardwatch.org.uk
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It’s also very important to be sure that merchants’ staff is educated about
credit card fraud, Merchant establishments can use the points above as a “to do” list
for dealing with credit card transactions. Considerable time and money in controlling
credit card frauds.
Some of the other methods used in prevention of frauds are:
a. Maintaining details of fraudulent application files, preferably in an
automated environment.
cxliv
161
www.rbi.org.in
cxlv
cardholder frauds in a transaction where the use of the credit card was unauthorized,
and covers claims arising out of the merchant’s liability to the service bank. This
coverage can apply under a number of circumstances, including a credit card lost or
stolen and used before the cardholder can report it. Identity thefts Post-purchase "slip
to information changes.”
2.24.3. Warning
Warning describes various methods of perpetrating fraud against credit and
charge card issuers, acquirers, and cardholders. Legal penalties for using various
methods to commit fraud are severe. The reason for sharing this information is that
the consumers will be aware of the importance of security and be aware of the
procedures used by financial institutions to protect against fraud. Neither bankers nor
their employers advocate the use of the fraudulent methods described herein. All the
information here is publicly available from other sources. Unnecessary detail is
purposely not included, particularly as it is applied to detection and prevention of
fraud.
The issuers of credit cards have taken various steps in order to reduce losses
as far as possible, resulting from loss or stolen cards. These loss reduction measures
enable the issuers of cards to reduce losses to be bone by them to a minimum level.
Some of the important loss reduction measures taken by the issuers of credit cards
with the help of following are: (i) Photo cards with signature digitally imprinted (ii)
Integrated circuit cards, (iii) Authorization of transaction (iv) Users limit, (v)
Merchants education, (vi) Help of Credit Industry Fraud Avoidance (CIFAS) in
U.K., (vii) Private Investigations agencies like started in U.K., (viii) PIN, (ix)
Prevention of application frauds, (x) Prevention of fraud delinquency are taking
important measures to reduce or minimize to prevent credit cards frauds in the
market.